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Freight Factoring: What is it and how does it work?

Running a modern freight company takes a lot of work, and it means you have to be a lot more than just an owner or manager. You’re also your own human resources department, marketing department, and accountant. Freight factoring (AKA load factoring) makes that last job a little easier by helping you manage your cash flow better.

But is freight factoring right for your company? How does this financial service work? Here’s everything you need to know.

what is freight factoring

What is freight factoring?

First, it’s important to understand what freight factoring in trucking is. The freight business basics are pretty simple: You pick up goods at one location, deliver them to the next, and the shipper or a broker pays you for that service. The amount you get paid minus your costs for delivering the cargo is your profit.

But you don’t usually get paid that profit right away. The industry-standard average is 40 days, and some companies can take up to 90 days to pay invoices. That’s a long time to wait for payment. Freight factoring essentially lets you sell that invoice to a factoring service. In exchange for a service fee, they pay you for that job immediately and then collect from the shipper or broker whenever they pay.

Recourse vs. non-recourse freight factoring

Before we talk about the specifics of recourse factoring vs. non-recourse freight factoring, it’s important to understand recourse. Recourse is a clause in your contract with a freight factoring provider that allows them to collect from you if your customer does not pay promptly — or worse, does not pay at all.

All factoring providers have similar clauses. Non-recourse freight factoring is often unclear. Non-recourse means that if your customer declares bankruptcy or goes out of business between the time you submit your invoice and when they are supposed to pay the factoring company, the factoring company will not try to collect from you. This is a rare scenario. Non-recourse does not mean that the provider will not collect from you if your customer does not pay. It only covers you in the specific situation outlined above.

Overall, factoring businesses make their money by taking the risk of a later payment in exchange for a fee. If your customer fails to pay on time, the factoring company will “recourse” you. In other words, they will collect from you until the company pays.  All factoring companies have some version of a recourse clause in their contract, and you should read and understand it before you sign.

How does freight factoring work?

Essentially freight factoring does one simple thing: It shortens the time you have to wait for payment for the work you have already done.

  • You haul a load from one place to the other.
  • You submit your paperwork to the factoring company rather than the broker.
  • You get paid right away.
  • Your broker pays the factoring company in 15-30 days.

In the case of the Truckstop.com factoring software, there are some additional benefits:

  • We charge flat rate fees, so there are no surprises.
  • We are a non-recourse factoring company to protect you in case of customer financial insolvency (bankruptcy).
  • Full-service billing: Truckstop.com will invoice your broker so you don’t have to.
  • Flexible cancellation: If the service is not working for you, cancel anytime.
  • There are no minimum volume requirements.

Factoring is different than Quick Pay options. Factoring is a flat rate if the broker is approved, but Quick Pay often has different fees associated with it. Not all brokers will offer the Quick Pay option either. For ideal cash flow management, freight factoring is a much better way to go.

Freight factoring terms, rates, and qualifications

Before you sign any contract, make sure you understand the fine print and what freight factoring will actually cost you.


Freight factoring rates will vary based on your business volume. Fees range from 2.5% – 5% per invoice. Some companies will charge you an initial setup fee for your first invoice. The most important thing to remember about fees, even flat fees, is to subtract them when you are figuring out your profit and loss on each load you haul. Remember to account for those fees in your overall budget.


You may see the term spot factoring. Many plans, including Truckstop.com’s, offer spot factoring options. This means you can pick and choose which invoices you factor. Spot factoring is usually better for smaller freight companies. Larger freight companies often use contract factoring to negotiate their rates, but they must factor all of their invoices.

In addition to recourse and non-recourse agreements, other terms come into play in factoring contracts. Once you become familiar with them, it will be easier to read and understand the legal terms and what is right for you and your business.


Not everyone qualifies for freight invoice factoring. Your company will have to meet some requirements before being approved:

  • You’ll need to meet a minimum credit score determined by the factoring company.
  • It will take some time for you to get approved for your first factor.
  • You need to have been in business for at least 90 days.
  • Younger freight companies usually need to provide a minimum annual income or projected annual income.

Larger freight companies generally have different standards to qualify for factoring. If you have questions, feel free to contact us for more information.

What do freight factoring companies do?

Freight factoring companies essentially take on some of the accounts receivable functions of your business. They will often invoice brokers for you, and the broker pays them, not you. This is why they charge a fee for their service.

Freight factoring companies will also do things like perform broker credit checks for you. Because they collect from the brokers or companies on your behalf, you are freed up to handle other aspects of running your business.

Truckstop.com offers an invoice factoring app so you can submit and track your freight factoring from nearly any device connected to the internet, making things even more convenient.

Key benefits of freight invoice factoring

There are a few major benefits to freight factoring. The first is same-day pay (in most cases) once your invoice is submitted and approved. This allows for more cash flow and operating capital for small or startup businesses. It also helps large companies maintain positive cash flow.

The second large benefit is the accounting factor we mentioned at the beginning of this article: You are effectively outsourcing your accounts receivables department to another company for a minimal fee. This takes a large part of the accounting burden off your plate, allowing you to focus on the other tasks of ownership, management, human resources, and more. You also won’t have to spend your valuable time on collection calls and chasing down invoices. The factoring company does much of the follow up for you as they are eager to collect the money they are now owed. 

Another benefit is that factoring companies will often qualify brokers for you, performing credit checks brokers are reliable. If you don’t have the resources or time to do this, freight factoring can help.

Freight invoice factoring can be a convenient and lucrative benefit for small and large businesses, whether established or just starting. It takes a lot of responsibility, worry, and time-consuming tasks off your shoulders.

What variables do factoring companies look at when assessing risk?

Factoring companies take the risk of invoices going unpaid and/or difficulty collecting from you if your customer does not pay. Here are some things they look at before approving you:

  • What is your credit history? This is not as large a factor as some others, but it does play a role.
  • Are your customers creditworthy? More important than your personal credit score is the stability of the customers you bill. Will they pay their invoices on time? That’s why factoring companies often require that brokers or customers be approved before they will factor your invoices.
  • Are the invoices valid? While fraud in this area is rare, factoring companies want to verify that each invoice they process is genuine.
  • Do you have a diverse set of customers? If you rely on only one or two brokers, your invoices are higher risk than if you have a larger customer base.
  • Is lack of cashflow making it challenging to operate your business day to day?
  • Do you have slow-paying customers affecting your ability to pay bills on time?
  • Have you done credit checks to make sure a broker will pay before you take a load?
  • Are you wasting valuable time on collections calls that could be spent on other things?

If you answer yes to any of these questions or simply want a better way to deal with invoices …

Start factoring today.

For many freight companies, both small and large, freight invoice factoring is a way to outsource accounting functions and collections, ensure steady cash flow, and streamline business operations.

The key is to evaluate all the facts before you get started. Look at what is right for you and your company, and read the fine print before signing any contract. Know your creditworthiness and that of your customers. Remember, if your customer doesn’t pay on time, you could still be held responsible for that invoice, so structure your finances accordingly. And finally, get work from a diverse group of brokers to make sure you are not overly dependent on one or two large customers.

There are terms you should be familiar with, and your company will need to go through a qualification process, but once you are set up with a factoring service, there are many great benefits. 

Have questions? Or are you ready to start freight factoring today? Check out Truckstop.com Freight Factoring Solutions.

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